England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
MANCHESTER DISTRICT REGISTRY
CHANCERY DIVISION

		Claim No. 2MA30082 Appeal No: M14C029 Manchester Civil Justice Centre 1 Bridge Street West Manchester
		28th February 2014

1. JUDGE HODGE QC: This is my extemporary judgment in the case of Mr Neale Ian Haley (as claimant) against Ms Zahra Itrat Siddiqui and three others (as defendants), appeal reference M14C029. This is the hearing of an application for permission to appeal by the claimant, with the appeal to follow if permission is given. The underlying litigation concerns the estate of the late Anna Marie Haley (deceased). The litigation has been the subject of a mediation, and that mediation has been successful in achieving a settlement of the matters in dispute, although there are still potential obstacles to the conclusion of that settlement because the court's approval is required on behalf of certain beneficiaries who are still minors. The precise issues in the litigation, and the nature of the agreement reached at mediation, are immaterial to the matter which is presently before the court.
2. On 10^th July 2013 District Judge Khan had ordered that the action be stayed until 10^th November 2013 for settlement by mediation or negotiation, or for narrowing the issues. Paragraph 2 of his order required that within seven days of the end of the period of the stay, the parties should jointly notify the court in writing of the outcome of negotiations and what, if any, directions were required. The order expressly stated that failure to comply with this direction, or properly engage in negotiations, might result in the application of sanctions; but no sanction was contained expressly within District Judge Khan's order of 10^th July. Paragraph 2 of that order went on to conclude that on receipt of such notification, the court file was to be referred to a Chancery district judge for further directions.
3. On 4^th December 2013, under cover of a document headed, "ADR Reference to District Judge" the matter was referred to District Judge Khan, expressly on the footing that the action had been stayed for ADR and the stay had by then come to an end. It was said that the claimant had not notified the court that settlement had not been reached. The district judge was asked to give case management directions. In fact the obligation to notify the court of the outcome of negotiations, and what, if any, directions were required, was not one on the claimant alone; it was directed to the parties jointly. The file having been referred to District Judge Khan, on 6^th December he noted that the parties had not complied with the order of 10^th July in that they had failed to notify the court of the matters set out in the order by 17^th November. He therefore made an order in these terms:

"(1) The claim be struck out. (2) Because this order has been made without a hearing, the parties have the right to apply to have the order set aside, varied or stayed. A party making such an application must send or deliver the application to the court (together with any appropriate fee) to arrive within seven days of service of the order."

That order, although made on 6^th December, was not drawn up, sealed or sent out by the court until 12^th December, a Thursday. It would have been deemed served on Monday, 16^th December 2013. I am told that it was in fact not received until the following day.

4. With commendable promptness, on 19^th December 2013 the claimant's solicitors, Farleys, issued an application notice. It asked the court to make the following orders: (1) The order dated 6^th December 2013, and received 14^th December 2013, be rescinded. (2) The claimant be granted relief from sanctions in respect of the order dated 6^th December 2013. (3) The court do provide the parties with further directions; and (4) the costs of this application be provided for. The evidence (within section 10 of the application notice) stated that the parties had reached terms of settlement in respect of the matter at a mediation on 13^th November 2012. Pursuant to the terms of that settlement, a deed of variation had to be drafted reflecting the terms of settlement and varying the relevant trusts. Furthermore, as the interests of child beneficiaries were affected by the terms of settlement, it was necessary to appoint solicitors and counsel to represent their interests, all of which matters were said to be beyond the claimant's control. It was acknowledged that by the order of 10^th July the matter had been stayed until 10^th November. It was accepted that the parties had failed to notify the court of the outcome of the stay within the relevant seven day period thereafter. For some reason the date for notification had not been diarised so that it came to the attention of the solicitor with the conduct of the matter on behalf of the claimant. However, the court was asked to take into account that the claimant has been actively pursuing the matter with the defendants' solicitors so as to ensure that all necessary papers were before the court to enable it properly to consider the terms of settlement and approve the same on behalf of the child beneficiaries. It was said that the oversight was not wilful and that it was the first default by the claimant in the action; and, in all the circumstances, it would be just and equitable, and in accordance with the overriding objective, to set aside the order of 6^th December 2013.
5. Shortly before the hearing, which was listed before the district judge (in the event, District Judge Matharu) on 21^st January 2014, a witness statement was made and filed by Mr Kieran O'Connor, a solicitor and partner in the claimant's solicitors, Farleys. That witness statement was dated 13^th January 2014 and exhibited various documents as exhibit KOC1. In addition, there was a written skeleton argument from the claimant's counsel, Mr Michael Mulholland. Solicitors for the second, third and fourth defendants had written into the court on 12^th January 2014 stating that the position of those defendants was that they would neither be opposing nor consenting to the claimant's application, on the basis that they did not wish to incur any unnecessary costs in taking any active role in respect of the application to reinstate or restore.
6. On 20^th January 2014 a similar letter was written to the court by Mills & Reeve, the solicitors for the first defendant. It said that their client's position throughout had been that it was not her intention to incur unnecessary costs by taking an active role in the proceedings, other than if absolutely necessary. In the circumstances, it was said that the first defendant's position was that she had no objection to the claimant's application, and did not propose to take any active role, and would abide by whatever decision the court came to.
7. That was the position when the matter came before District Judge Matharu. Having heard Mr Mulholland (of counsel) for the claimant and applicant, the district judge refused the application for relief from sanctions. She also refused permission to appeal because the grounds of appeal referred to were said to involve "an improper balancing exercise". The district judge's order recorded that the claimant had offered no explanation for the failure to comply with a court order, and had told the court that there was "no good reason". The district judge said that all factors had been evaluated by the exercise of the court's discretion.
8. An appellant's notice was filed on 10^th February 2014. The matter was placed before me; and I gave case management directions for the conduct of the appeal on 12^th February 2014. I noted that this was an appeal against the refusal of relief from sanctions, and that a note of the district judge's judgment (prepared by counsel) had been provided. On that basis, I listed the application for permission to appeal, with the hearing of the appeal (subject to such permission) to follow at 2.00 pm today, Friday 28^th February. I directed that the respondents should prepare for the hearing of the appeal notwithstanding that permission had not been granted. I gave further case management directions with a view to ensuring that the appeal could be heard today. Although a transcript of the district judge's judgment has been ordered, it is not yet available. The note prepared by Mr Mulholland of the district judge's judgment has been submitted to the district judge for her approval but, no doubt because she has not been sitting this week (or the early part of this week), the district judge has not yet managed to return the note approved. However, I am content to approach this appeal on the basis of Mr Mulholland's note of the judgment, supplemented as it is by the form N460, setting out the district judge's reasons for refusing permission to appeal in a little more detail than appears from the formal court order.
9. The district judge began her judgment by noting that the application made by the claimant was one for relief from the sanction imposed by District Judge Khan striking out the present action. She recorded that the claimant had made the application promptly. She recorded that the parties had had the right to apply within seven days of service of the order on them. She went on to say that the order, on its face, had recorded that the parties had not complied with the order of 10^th July, which had required that the parties, within seven days of 10^th November, should jointly notify the court in writing of the outcome of negotiations and what, if any, directions were required. She noted that the obligation had been on the parties to report by 17^th November, and it was the failure to do so which had led to the order of 12^th December 2013. She indicated that she did not intend to record what was said in the claimant's skeleton argument or in Mr O'Connor's witness statement. She did record the position of the defendants, which was that they were neither opposing nor consenting to the application. She then went on to state that Mr Mulholland's position was that this was an unusual case. The litigation had effectively ended in 2012 with the mediation agreement. There were, however, procedural requirements as to how that agreement should be put into effect. Those had not yet been completed.
10. Mr Mulholland's position was that if relief was not granted it might lead to satellite litigation. He said that the district judge should take into account all of the factors leading to the failure to inform the court. That was said to be all that had happened here. The witness statement of Mr O'Connor was said to have dealt with the failure to inform the court at paragraph 33. He had referred to some significant history in the course of his statement. The district judge had been told that the mediation agreement would certainly need litigation for approval. Mr Mulholland was said to have informed the district judge that the outstanding matters were so close to finalisation that she should not make an order striking the case out. The district judge said that the starting point was the provisions of Rule 3.9, that the court would consider all of the circumstances. She stated that the overriding objective had been amended by the addition of Rule 1.1(f) - I think that that is in fact a reference to CPR 1.1(2)(f) - to require the court to take into account the need to enforce compliance with, amongst other things, orders of the court. The district judge said that the situation here was extremely straightforward. The case had been commenced some time ago. The court had to look at the application before it. The court had to consider whether there was any good reason for any failure to comply. Mr Mulholland had told her that there was no good reason. He said that there was no good reason for any of the parties not to comply, but pointed out that the sanction only bit on the claimant. Be that as it may, it was said to be the claimant who was most at risk from any such failure. The district judge said that she had been told of delays in the execution of the order, which she had been told were not the fault of the claimant. But that, she said, was to go around in circles. There was no good reason. The need for compliance with orders of the court was said to be essential. If departure from that principle were to be tolerated, it was said that all of the amendments were a waste of time. There would be no change.
11. The district judge said that the authorities were also very clear that applications of this type should be granted more sparingly. What was envisaged and required if a judge made orders such as this? All the district judge had been told was that the claimant had effectively run the litigation and there would be satellite litigation. That was said not to be a good reason. The claimant's solicitors' failure to diarise the matter was not a good reason. She had been invited to overlook that; but she said that she could not. The allocation of court resources was another matter. The failure of the claimant, and the need to make the application, had impacted on the allocation of the resources of the court for other cases. The district judge said that she could see no reason why the order should be varied.
12. When the district judge came to complete the N460, giving her reasons for refusing permission to appeal, she described the nature of the hearing as one by the claimant for relief from sanctions by way of application notice dated 19^th December 2013, where the claim had been struck out on 12^th December for non-compliance with an earlier order dated 18^th July. The district judge summarised the result of the hearing as follows:

"Claimant's application was dismissed where the basis of the application was that this was an 'unusual case'. It was submitted that there was no good reason for the breach, which was a failure to diarise the date for compliance provided for in the order of 18^th July. Submissions then made of the case being close to finalisation, and this order would result in satellite litigation against the solicitors. The defendants were neutral in stance."

The district judge's brief reasons for her decision to refuse permission to appeal were said to be as follows: "That I had performed an improper balancing exercise. Whilst the claimant accepted that there was 'primacy' for a need to comply with a court order, the order of 18^th July was not an unless order." The district judge had not had sufficient regard to the likelihood of satellite litigation against the claimant's solicitors. She said that permission was refused "where the claimant did not submit that the breach was trivial, offered no good explanation other than an apology to the court and submitted that this was a joint breach of all the parties. The claimant was reminded of the fact that he was the claimant. It was his claim to pursue efficiently. All the circumstances of the case were taken into account in the context of a claim commenced in February 2012. The authorities on 3.9 applications were not considered by the applicant but were very clear as to guidelines. The case had been case managed by way of a number of orders of Judge Khan and to attend and say it was an 'oversight' was neither adequate or sufficient, when applying the overriding interests of justice and allocating court resources. Court orders and breaches, in absence of good reason, required compliance and enforcement."

13. At the opening of this appeal, and having pre-read not only the appeal bundle but also the written skeleton arguments of Mr Mulholland, for the claimant and appellant, and of Mr Charles Machin (of counsel), for the second to fourth defendants, and having noted a letter from Mills & Reeve for the first defendant dated 28^th February 2014 in which they made it clear that the first defendant (as in the lower court) was neutral so far as the outcome of the appeal was concerned, I indicated that it seemed to me that the application had proceeded before the district judge on a fundamentally false basis. I noted that the application notice had sought not only relief from sanctions, but also an order rescinding or setting aside the order of 6^th December 2013. It seemed to me that in approaching the application as one primarily for relief from sanctions, the district judge, no doubt encouraged by the way in which the application had been focused before her, had proceeded on a false basis. The sanction was not one that was contained within a rule or practice direction. The sanction was one that had been imposed by court order. But the court order imposing that sanction was one that had been made without a hearing, and of the court's own initiative.
14. No doubt District Judge Khan had proceeded pursuant to CPR 3.4(2)(c). That provision provides that the court may strike out a statement of case if it appears to the court that there has been a failure to comply with, amongst other things, a court order. Subrule 3.4(3) provides that when the court strikes out a statement of case it may make any consequential order it considers appropriate. CPR 3.4(4)(b) recognises that one of the consequential orders that the court may make, when striking out a statement of case, is one requiring the claimant to pay costs to the defendant. In fact, District Judge Khan's order of 6^th December had contained no provision governing the payment of costs by any party to the litigation to another. In that regard, it seems to me that it was calculated to lead to further litigation, rather than avoiding such litigation. Be that as it may, however, District Judge Khan's order, having been made without a hearing, correctly stated (in paragraph 2) that because the order had been made without a hearing, the parties had the right to apply to have it set aside, varied or stayed. Such a provision is required where a court has dealt with an application of the court's own initiative: see CPR 3.3(4), (5) and (6)). There are corresponding provisions in CPR 23.8, 23.9 and 23.10 where an application has been dealt with without a hearing. Where an order has been made by the court of its own initiative, or without a hearing, the parties are entitled to apply to the court to have that order set aside or varied. On such an application, unlike one to set aside an order made at a hearing which the parties have either attended, or had an opportunity to attend, the restrictions contained within CPR 3.1(7), as laid down by the Court of Appeal in the case of Tibbles –v- SIG plc [2012] EWCA Civ 518, [2012] 1 WLR 2591 have no application. Since the parties have not had an opportunity of making representations to the court before an order was made without a hearing, or of the court's own initiative, the parties are entitled to invite the court to review whether it was appropriate to make the order in the first place.
15. In my judgment, on such an application to review an order made without a hearing and/or of the court's own initiative, the restrictions upon applications for relief from sanctions, as set out by the Court of Appeal in the case of Mitchell –v- News Group Newspapers Limited [2013] EWCA Civ 1537 [now reported at [2014] 1 WLR 795], have no application. In my judgment it is wrong to approach an application to set aside an order made without a hearing, or of the court's own initiative, as though the restrictions on an application for relief from sanctions apply. CPR 3.8 makes it clear that where a party has failed to comply with a rule, practice direction or court order, any sanction for failure to comply imposed by the rule, practice direction or court order has effect unless the party in default applies for and obtains relief from the sanction. That has no application to a situation where the court's order, made without a hearing and of its own initiative, is imposing a sanction for the first time. It is only in cases where a party has failed to comply with a sanction that an application under CPR 3.9 is necessary; and it is only in that situation that the restrictions in Mitchell and subsequent cases apply. As was made clear in Mitchell (at paragraph 45), on an application for relief from a sanction, the starting point should be that the sanction has been properly imposed and complies with the overriding objective. In my judgment, no such assumption applies where a sanction has been imposed by an order made without a hearing, or of the court's own initiative, and an application is made to vary it or set it aside.
16. In my judgment, the district judge, encouraged, no doubt, by the way in which the matter had been presented to her, fell into error in treating the application fundamentally as one for the grant of relief against sanctions. I am entirely satisfied that that is what she did when one looks at what she said, both in her judgment, and also in the form N460. The district judge said that the starting point was the provisions of CPR 3.9. She stated that the court had to consider whether there had been any good reason for any failure to comply with the July 2013 order. She said that there was no good reason for non-compliance. The only elements of the overriding objective to which the district judge had regard were those set out in CPR 1.1(2)(e) and (f), relating to allotting to the case an appropriate share of the court's resources (e), and (f), enforcing compliance with rules, practice directions and orders. She said nothing about the other constituent elements of the overriding objective in CPR 1.1(2)(a) through to (d) of ensuring that the parties are on an equal footing, saving expense, dealing with the case in ways which are proportionate, and ensuring that it is dealt with expeditiously and fairly. At no stage did the district judge consider whether it had been reasonable or proportionate for District Judge Khan to have imposed the drastic sanction of striking out the claim for the failure to comply, on the part of all parties, with their joint obligation (contained within the July 2013 order) of notifying the court in writing of the outcome of negotiations and what, if any, directions were required.
17. In the case of Marcan Shipping (London) Limited –v- Kefalas [2007] EWCA Civ 463, [2007] 1 WLR 1864 Lord Justice Moore-Bick, in delivering the leading judgment of the Court of Appeal, had pointed (at paragraph 36) to the need, before making a conditional order, particularly orders for the striking out of statements of case, for the judge to consider carefully whether the sanction being imposed was appropriate in all the circumstances of the case. He noted that a conditional order striking out a statement of case was one of the most powerful weapons in the court's case management armoury, and should not be deployed unless its consequences could be justified. He found it difficult to imagine circumstances in which such an order could properly be made for what could be described as "good housekeeping purposes". Those observations apply with even more force where the court is not considering the making of a conditional, or unless, order, but is proposing to make an immediate order striking out a claim, where no sanction to that effect has previously been imposed.
18. In my judgment, the district judge fell into error in the way she approached the application that was before her. Although emphasis may not have been placed upon the application to set aside the order as one having been made without a hearing, and of the court's own initiative, in my judgment that basis of application was sufficiently encompassed within paragraph 1 of the application notice. Had the district judge focused upon that aspect of the application, rather than upon the application in paragraph 2 for relief from sanctions, she would not have fallen into the error of applying the principles in Mitchell to the application that was before her. I should also add that it seems to me that even if the district judge had been considering what was truly an application for relief from sanctions, she may also have fallen into error in failing to consider whether the breach was trivial before she went on to consider whether good reason for the breach of the court order had been shown. But it is unnecessary for me to develop that aspect of the matter further since I am satisfied that, in applying the principles in Mitchell, the district judge had fallen into error.
19. I am satisfied, for the reasons I have given, that there is a real prospect of success on appeal and, therefore, permission to appeal is given. Indeed, I am satisfied that the decision of the district judge was wrong or, alternatively, was unjust because of a serious procedural irregularity in the proceedings before her in that she focused upon the wrong basis for the application that had been made to her. In those circumstances, I will also allow the appeal.
20. In my judgment the circumstances of the present case afford a salutary lesson potentially to other litigants in other litigation in ensuring that applications to the court to set aside orders made without a hearing, or of the court's own initiative, are properly presented as such, and not simply as applications for relief from sanctions. Because of that, and pursuant to the power I have to make an order subject to conditions, I will make it a condition of giving permission to appeal, and allowing the appeal, that a transcript of this judgment will be obtained at the expense of the claimant.
21. I have discussed, before delivering this judgment, what costs order should be made. I think both counsel are in agreement that, whatever the position may be as between the parties to the litigation and their respective solicitors, as between the parties the appropriate order to make, in relation to both the costs of the application and also the costs of the appeal, is simply to make no order as to costs. The justification for that is that it had been the joint responsibility of all parties to comply with the July order, and it was their joint failure to do so that has led to this application and appeal.
22. I have also discussed how the matter should proceed from here. The parties are in agreement that matters remaining to be addressed as part of the resolution of the mediation agreement should be capable of being addressed within the course of the coming month. Upon that basis, I will say that the matter is to be listed either for the approval of the settlement on behalf of the minor beneficiaries, or for further case management directions, before one of the Chancery district judges on the first available date after 1^st April 2014. So I make an order in those terms. I will invite Mr Mulholland and Mr Machin to settle, and agree, the terms of an order to give effect to the court's judgment.
(End of Judgment)